- Location
- Hertfordshire
Check the terms of the lease if you’re buying. It may be the location that’s as valuable as the people or stock being sold.
Valuing a business
- Thread starter Mchalehs
- Start date
smcapstick
Member
- Location
- Kirkby Lonsdale
If it was true, I’d sell up tomorrow and restart on Monday!
- Location
- Bedfordshire
You wouldn't be allowed to. I think the saleability determines a business from a sole trader.
smcapstick
Member
- Location
- Kirkby Lonsdale
I’m limited. I just work for my business
Iron150
Member
- Location
- Conwy, north wales
I think that a lot more info is needed here, it could be worth a lot of money and it could be worth nothing, would think it would have to be linked to profit,
- Location
- Bedfordshire
I’m limited. I just work for my business
You still wouldn't be able to start up, unless the agreement wasn't right, else everyone would be doing it.
- Location
- Ardrossan Ayrshire
One thing to remember is that the original owner of the business would need to pay redundancy to the employees if he closed the business. So obviously its to his advantage for somebody else to take on the liability.
Donkey Oaty
Member
- Location
- Aberdeenshire
I was looking at this from the point of view of a sole trader rather than a Ltd co where net profit is my income.
Donkey Oaty
Member
- Location
- Aberdeenshire
Yes, but in our industry, it's often a multiple of the soft income which repeats rather than future new sales. I've never bought or sold a business though. It really just comes down to an individual deal between a buyer and a seller.
- Location
- South Molton
Whats Mole valley going to pay for countrywide?
Sussex Martin
Member
- Location
- Burham Kent
I wouldn't know Sid as I don't know their asset value or their net profit.
The end of last year I was offered £600k for the 40% share my wife and I hold in our family business, it has very few assets but is a very good business with good profits and good future potential. We turned it down as we didn't think it was enough.
Nearly
Member
- Location
- North of York
Sorry, just wiping the coffee off the keyboard. Misread that as £600k for 40% of the wife.
There are a number of ways to value a business. Not every business can be valued the same way.
Asset Value - in simple terms the value of the business is the value of selling off its assets. If I own a business that trades as a landlord, the value of the business is the value of the houses owned, less any mortgages or charges existing.
Earnings potential - commonly known as the price to earnings ratio and is usually applied to shares in a company. However, earnings potential can apply to more than just shares. The value of a gorse covered field might be higher than it first seems as it may have an earnings potential if the gorse was cleared and there was good but neglected arable land under the gorse (it might still be rubbish if the gorse was growing due to it being just a rocky outcrop!!). Maybe a bad example, but at least it agricultural. Or maybe the gorse covered field has absolutely no agricultural value but would have great views if the gorse was cleared and is the perfect place to set up a camp site and make money off campers.
Entry cost - some business need a lot of money or a specific asset to start up, so an existing business has a value in that it immediately provides the essentials. An example is starting up a bar. Anyone can buy a property and go down to the off license and buy a lot of alcohol. However, they still do not have a bar as they do not have the license. In NI (don't know about elsewhere) but licenses are very strictly controlled, so have a value on their own of about £60k. A bar has a value as it included the entry cost of the license. The cost of employing people (or sacking them) is also a consideration in both buying or selling a business.
Discounted cashflow - sorry this one gets a bit technical. Money has a value, but a pound today is worth more than a pound in 10 years time (inflation eats into the future value of the pound in your pocket). So if you have a business that generates a steady stream of cash / income, its future value can be calculated using discount tables, and depends on what you think the future rate of inflation will be, thereby giving a value to the business. This can apply in a business where there are no assets. In previous generations, a milk round or a bread run could be valued this way - no real assets, but a steady income stream form customers who could not go elsewhere unless someone muscled in on your patch.
Comparables - what do other businesses in the same line of work sell for. A safe boring company can be valued by comparing them to the sale value of other safe boring companies, but cannot for example be valued by being compared to high risk companies.
Industry rule of thumb - this is a bit like the comparables example. The rule of thumb used to be that a pub in NI was valued at two times it annual turnover. Locations, name, theme, etc meant nothing - it was show us you turnover figure.
Sometimes it takes the combination of a couple of the above to reach a valuation. My first example above - a landlord business. Basically the value of the business is the value of the houses. However, maybe I negotiated a very lucrative rental agreement on one property. The rent being received is way above the market rate. Then the value of the business has to be a combination of the asset value and earnings potential or may more accurately the discounted cash flow to the end of the rental period.
All of the above is subject to the usual two things - a willing buyer and a willing seller. The price will only be what can be negotiated between the two parties!
Asset Value - in simple terms the value of the business is the value of selling off its assets. If I own a business that trades as a landlord, the value of the business is the value of the houses owned, less any mortgages or charges existing.
Earnings potential - commonly known as the price to earnings ratio and is usually applied to shares in a company. However, earnings potential can apply to more than just shares. The value of a gorse covered field might be higher than it first seems as it may have an earnings potential if the gorse was cleared and there was good but neglected arable land under the gorse (it might still be rubbish if the gorse was growing due to it being just a rocky outcrop!!). Maybe a bad example, but at least it agricultural. Or maybe the gorse covered field has absolutely no agricultural value but would have great views if the gorse was cleared and is the perfect place to set up a camp site and make money off campers.
Entry cost - some business need a lot of money or a specific asset to start up, so an existing business has a value in that it immediately provides the essentials. An example is starting up a bar. Anyone can buy a property and go down to the off license and buy a lot of alcohol. However, they still do not have a bar as they do not have the license. In NI (don't know about elsewhere) but licenses are very strictly controlled, so have a value on their own of about £60k. A bar has a value as it included the entry cost of the license. The cost of employing people (or sacking them) is also a consideration in both buying or selling a business.
Discounted cashflow - sorry this one gets a bit technical. Money has a value, but a pound today is worth more than a pound in 10 years time (inflation eats into the future value of the pound in your pocket). So if you have a business that generates a steady stream of cash / income, its future value can be calculated using discount tables, and depends on what you think the future rate of inflation will be, thereby giving a value to the business. This can apply in a business where there are no assets. In previous generations, a milk round or a bread run could be valued this way - no real assets, but a steady income stream form customers who could not go elsewhere unless someone muscled in on your patch.
Comparables - what do other businesses in the same line of work sell for. A safe boring company can be valued by comparing them to the sale value of other safe boring companies, but cannot for example be valued by being compared to high risk companies.
Industry rule of thumb - this is a bit like the comparables example. The rule of thumb used to be that a pub in NI was valued at two times it annual turnover. Locations, name, theme, etc meant nothing - it was show us you turnover figure.
Sometimes it takes the combination of a couple of the above to reach a valuation. My first example above - a landlord business. Basically the value of the business is the value of the houses. However, maybe I negotiated a very lucrative rental agreement on one property. The rent being received is way above the market rate. Then the value of the business has to be a combination of the asset value and earnings potential or may more accurately the discounted cash flow to the end of the rental period.
All of the above is subject to the usual two things - a willing buyer and a willing seller. The price will only be what can be negotiated between the two parties!
Pieces_of_Eight
Member
Assets would include intellectual property owned by the company, e.g. software products with licences, not just tangible assets.
Valuing intangible assets, e.g. brands, is often very difficult and can be a good source of "creative accounting".
Does the business in the OP sell goods or services?
A provision of services to customers who are signed into 5 year contracts (for example) could be quite a valuable asset to a business.
- Location
- Ceredigion, wales
There's a local ag merchant that's almost at retirement age. Rented property two part time staff. I believe one of the staff is interested in buying the business and is going to pay for the stock at retail value and assets (van and forklift) at book value. Good will is worth nothing really as there's nothing the previous owner can do to ensure the customers don't all go to wynnstay or CCF just down the road.
Exfarmer
Member
- Location
- Bury St Edmunds
Sadly most business’s have limited value with no assets such as this. You can stop the present owner setting up in competition but you cannot hold his employees which often have considerable clout with customers. They can go to Fred Smiths down the road with tales of woe and effectively drag the customer base behind them.
Recently was offered the chance of investing in a highly profitable small business, would have loved to have joined it, but due to the vagaries of the industry I declined as it would have been very easy for others to have entered the arena. Perhaps a missed opportunity as it is going from strangth to strength! Only time will tell
Recently was offered the chance of investing in a highly profitable small business, would have loved to have joined it, but due to the vagaries of the industry I declined as it would have been very easy for others to have entered the arena. Perhaps a missed opportunity as it is going from strangth to strength! Only time will tell
bjreroberts
Member
In theory 1 years net profits for goodwill plus assets / stock / lease on a good location.
However, the goodwill all depends upon supply and demand for that type of business and for most small businesses the value is zero. For example cafes, why would you pay for goodwill, when you could just start somewhere from scratch.
In addition employees with long service could be regarded as a liability!
However, the goodwill all depends upon supply and demand for that type of business and for most small businesses the value is zero. For example cafes, why would you pay for goodwill, when you could just start somewhere from scratch.
In addition employees with long service could be regarded as a liability!
smcapstick
Member
- Location
- Kirkby Lonsdale
Everyone would do it for a value of 5 x net profit. My remark was a tad facetious, though... a valuation based upon that for a small agricultural service business is ludicrous!You still wouldn't be able to start up, unless the agreement wasn't right, else everyone would be doing it.
smcapstick
Member
- Location
- Kirkby Lonsdale
That's pretty much what I said.
With a one man band, the customer pays for that man. Take him out of the equation, there's zilch left.